Goldman Sachs: Currency Carry Trade Surges Back to Multi-Year Highs
The forex carry trade, blamed for a major 2024 market blowup, has roared back to its biggest levels in years, Goldman Sachs reports.
The currency carry trade — a hedge-fund strategy that was widely blamed for triggering a massive market blowup in 2024 — has staged a dramatic comeback and is now operating at some of its largest levels in many years, according to Goldman Sachs. The resurgence marks a striking turnaround for a trade that was at the center of one of last year's most turbulent financial episodes.
The carry trade works by borrowing money in a low-interest-rate currency and reinvesting those proceeds in higher-yielding currencies or assets, pocketing the difference. When the strategy unwinds suddenly — as it did in 2024 — it can trigger sharp, cascading moves across global markets as traders scramble to exit positions simultaneously, amplifying volatility well beyond the currency markets themselves.
Read more Meta Stock Surges to Best Week Since Early 2024 on AI Optimism →
Goldman Sachs's findings suggest that institutional appetite for the strategy has not only recovered but accelerated, raising fresh questions among market watchers about whether the conditions that caused last year's violent unwind could reassert themselves. The carry trade's outsized return indicates that yield differentials between major currencies remain wide enough to make the risk-reward calculus attractive to sophisticated investors willing to absorb the tail risk.
The revival underscores a broader tension in global markets: central banks in different economies remain at very different points in their rate cycles, creating persistent spreads that carry traders can exploit. Yet those same divergences can reverse rapidly, and history shows that carry trade unwinds tend to be sudden and severe, with little warning for those caught on the wrong side of the bet.
Continue reading at MarketWatch.com
